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Copyright© 1999-2008, Holly Grigaitis-Svercl. All rights reserved. Reproduction of any content requires written permission from the owner. |
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Arizona’s Subdivision Laws If you own several lots OR homes in one neighborhood, you would be wise to read this entire article. Arizona has very strict laws regarding illegal subdividing due to an overabundance of caution after Arizona became ill-reputed for land fraud. If you own or have owned more than 6 homes or lots in one subdivision, there is a very good chance you are breaking Arizona law...and probably aren’t even aware of it. Ned Warren, a developer/con-artist, bilked 1000’s of innocent real estate buyers by selling the same lot to multiple people, creating fake deeds, and representing river bottoms as buildable lots. Several subdivisions in the Verde Valley are Ned Warren subdivisions, hence the lack of roads, paved streets, and utilities in some developments. To prevent future occurrences and scams, Arizona developed some of the Nation’s toughest laws regarding illegal subdividing. They help ensure that heavily developed areas will have proper access, utilities, drainage, and that consumers will have full disclosure regarding the land they are purchasing. This disclosure is provided through a disclosure affidavit or a Subdivision Public Report. So when a person purchases lots in a subdivision, at what point does the purchaser become a sub-divider and need a public report before selling the lots? A.R.S. 32-2101 defines a sub-divider as "a person who offers for sale or lease six or more lots, parcels or fractional interest in a subdivision or who causes land to be subdivided". A.R.S. 32-2183 states," A sub-divider shall not sell or lease or offer for sale or lease in this state any lots, parcels or fractional interest in a subdivision without first obtaining a public report from the commissioner except as provided….” Scenario 1 You own or have an interest in, six or more lots in an approved subdivision. You must obtain public report before offering for sale, ANY of the lots. Scenario 2 You buy and re-sell three lots in a subdivision in 2004. Then you purchase 2 more lots in that subdivision in 2005 and sell them. A public report is not required. But if you purchases one or more lots in this subdivision after the first 5 you sold, you are required to obtain a public report for the subsequent lots. There is no time limit over which the purchases occurred. If a person purchases 3 lots in 1979 and sells them and in 2006 purchases three or more lots, that person is required to obtain a public report before selling any of them, because they now have 6 or more lots and are considered sub-dividers under Arizona law. Scenario 3 A subdivision was platted in 1957 and no improvements have been made. In 2004, a person purchased six lots. They will need to obtain a public report before offering any of the lots for sale. Scenario 4 Mr. Jones purchases 4 lots in a subdivision in his personal name. Mr. Jones also owns Homes4U, LLC, which purchases 2 lots in the same subdivision. Public reports are required.
These scenarios have been taken from literature and articles put out by the real estate department over the years. Our last commissioner was ever-vigilant in attempting to catch up with illegal sub dividers, and our current commissioner has made illegal subdividing his top priority. Although the law is designed to prevent those who are actively and purposefully engaging in illegal subdividing, the law is written in such a manner where innocent and casual property owners may get caught in the commissioners cross-hairs. Of course, ignorance of the law is never a viable defense. Shared well agreements, utility easements, etc. between 6 or more parcels, are currently under heavy scrutiny by the department as acting in concert with other parties to create illegal subdivisions is also prohibited. For more information on subdivision laws, contact the Arizona Department of Real Estate. How to Calculate Capital Gain In real estate, capital gains are based not on what you paid for the home, but on the adjusted cost basis. To calculate this: 1. Take the purchase price of the home: This is the sale price, not the amount of money you actually contributed at closing. 2. Add adjustments: • Cost of the purchase - including transfer fees, attorney fees, inspections, but not points you paid on your mortgage. • Cost of sale - including inspections, attorney's fee, real estate commission, and money you spent to fix up your home just prior to sale. • Cost of improvement - including room additions, deck, etc. Note here that improvements do not include repairing or replacing something already there, such as putting on a new roof or buying a new furnace. 3. The total of this is the adjusted cost basis of your home. Subtract this adjusted cost basis from the amount you sell your home for. This is your capital gain. Special Real Estate Exemption for Capital Gains Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of the home is exempt from taxation if you meet the following criteria: • You have lived in the home as your principal residence for two out of the last five years. • You have not sold or exchanged another home during the two years preceding the sale. Also note that as of 2003, you may qualify for this exemption if you meet what the IRS calls "unforeseen circumstances," such as job loss, divorce, or family medical emergency. Contact your attorney or tax advisor for more information. Information deemed reliable but not guaranteed. Reprinted from the NATIONAL ASSOCIATION OF REALTORS® 2003. www.realtor.org |
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This page was last updated on 12/26/2007 |
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Arizona Subdivision Laws |